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The real risk-free rate (r*) is 2.8% and is expected to remain constant. Inflation is expected to be 7% per year for each of the
The real risk-free rate (r*) is 2.8% and is expected to remain constant. Inflation is expected to be 7% per year for each of the next three years and 6% thereafter The maturity risk premium (MRP) is determined from the formula: 0.1 (t 1)%, where t is the security's maturity. The liquidity premium (LP) o all Moq Computer Corp.'s bonds is 1.05%. The following table shows the current n relationship between bond ratings and default risk premiums (DRP): Rating Default Risk Premium U.S. Treasury 0.60% 0.80% 1.05% 1.45% Moq Computer Corp. issues 14-year, AA-rated bonds. What is the yield on one of these bonds? Disregard cross-product terms; that is, if averaging is required, use the arithmetic average. O 10.86% O 11.11% 12.16% O O 5.95%
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